Time Warner CEO.Dialing up competition in the local phone market, Time Warner Cable announced yesterday that it was partnering with MCI and Sprint to provide telephone calls through its cable networks.

The service, called Digital Voice, will provide unlimited calling for $40 a month for Time Warner cable customers, and $50 for non-subscribers. Though the plan uses voice-over-Internet technology, or VoIP, it works with existing telephones and jacks.

“To the average customer, there will be no difference at all,” said Keith Cocozza, a Time Warner Cable. The company has not set a New York launch date yet, he added.

Seven years after Congress deregulated the telecommunications industry, technology advances finally have allowed cable and telephone companies to encroach on each other’s territory.

Before VoIP, there was no efficient, low-hassle way for cable companies to provide telephone service.

But now cable companies are targeting customers with flat-rate “bundle” plans that combine phone, Internet and television service on one bill. Cablevision was the first to introduce that service in New York, rolling out a $35 all-you-can-call plan last month.

But Time Warner’s system is far more extensive, reaching 10.9 million subscribers in 27 states.

The odd thing about the Time Warner announcement, analysts said, was the partnership with long-distance phone companies.

Most cable companies, such as Cablevision, simply negotiate interoperability agreements to get their calls routed to a national network. By agreeing to work with Time Warner, MCI could be competing against itself for local phone customers.